High Logistics Costs Remain Major Obstacle to Indonesia’s Competitiveness

High logistics costs in Indonesia remain a major obstacle to its competitiveness. The 2016 Logistics Report Index by the World Bank placed Indonesia 63rd out of 160 countries. The report measured efficiency, infrastructure, and logistics service quality, in which Indonesia placed behind Singapore, Malaysia, and Thailand. Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Chairman Wahyu Utomo asserted that 72% of these logistics costs could be attributed to transportation and that, on average, logistics costs contributed to 40% of a product’s retail price. KPPIP also identified inefficient port operations, uncompetitive logistics service markets, and lengthy trade procedures as factors contributing to high logistics costs, hampering Indonesia’s competitiveness, especially in the manufacturing sector. KPPIP itself was established in 2014 to accelerate infrastructure development in Indonesia as mandated by Presidential Regulation No. 75 of 2014. The Committee is led by the Coordinating Minister for Economic Affairs and consists of, among others, the Minister of Finance, the Minister of National Development Planning, and the Minister of Agrarian Affairs and Spatial Planning.

Recent reform efforts have been aimed at tackling the causes that contribute to high logistics costs in Indonesia. First, a series of big port projects have been on the docket to increase the country’s port capacity. These include Kuala Tanjung international hub port in North Sumatra, New Priok port in Jakarta, Patimban deep-sea port in West Java, and Bitung international hub port in North Sulawesi. Second, further integration of port transportation and special economic zones could potentially cut logistics costs. One of the ambitious projects in this regard was the Java Integrated Industrial and Ports Estate (JIIPE) complex in East Java. Developed by state-owned port operator Pelindo III and AKR Corporindo, JIIPE is being constructed at the edge of eastern Java. It would have a total berth length of 6,200 m that could cater to vessels up to 100,000 deadweight tonnage (DWT). The complex is due to be completed by 2030 and will be able to accommodate nearly 200 companies. Lastly, Indonesia has also attempted to tackle high logistics costs through regulatory reform efforts. On June 2017, President Jokowi released the 15th Economic Policy Package, which was specifically aimed at business development and competitiveness of national logistics providers. One of the highlights of this package is the institutional strengthening of the Indonesia National Single Window (INSW), an integrated national system to process export-/import-related documents. Through Presidential Regulation No. 44 of 2018, the INSW now includes an online system to process users’ data and information. An agency directly supervised by the Minister of Finance has also been established to implement the system.

On July 2, President Joko “Jokowi” Widodo inaugurated Indonesia’s first wind power plant, the largest such plant in Southeast Asia to date. Located in Sindereng Rappang regency in South Sulawesi, the Sidrap Wind Farm boasts 30 sets of 80-meter-high wind turbines that in total can produce 75 megawatts (MW), meaning the wind farm can power up to 70,000 households. UPC Renewables built the wind farm in collaboration with a local firm, with a total investment of US$150 million. From its construction and operation, the Sidrap Wind Farm could create 1,150 jobs, according to PLN President Director Sofyan Basir. In the inauguration speech, the President also stated that another wind power project was also being developed in Tanah Laut in East Borneo, Sukabumi in West Java, and Jeneponto in South Sulawesi, with construction on the latter being approximately 80% complete.

On the same day, South Sumatra Governor Alex Noerdin inaugurated a solar photovoltaic power plant at Jakabaring Sport City in Palembang. Part of the preparations for the 2018 Asian Games, the Jakabaring Solar Plant will produce 2 MW of electricity, roughly equal to 172,000 liters of fuel. Consisting of 5,248 photovolatic sheets, the project was a collaboration between South Sumatra-owned energy company PDPDE and Japanese multinational company Sharp Corporation. The latter supplied technology for the plant under the Joint Crediting Mechanism, which is also referred to as the carbon credit scheme. The plant operator is under a 20-year contract with state-owned electricity company PLN through an independent power producer scheme.

These wind power and photovoltaic projects comprise part of Indonesia’s plan to achieve 23% renewable energy in its national energy mix by the end of 2025. Currently, renewables account for only around 8% of Indonesia’s energy mix. The drive to increase Indonesia’s renewable power generation capacity is also part of Indonesia’s larger initiative to expand its general power generation capacity by an extra 35 GW. In a recent roundtable with the Council, Minister of Energy and Mineral Resources Ignasius Jonan stated that 15,000-18,000 MW were underway, expected to be done by 2019-2020. The lack of financing scheme details and the overestimation of projected electricity, due to slower than anticipated economic growth, have hampered progress in realizing the 35 GW goal.

PDI-P acknowledges vote decline in strongholdsThe Jakarta Post 2nd Jul 2018
The number of votes garnered by the Indonesian Democratic Party of Struggle (PDI-P) during the recent regional elections was lower than the amount gained in previous elections, a top party official has said.

Defense & Security

Japan, Indonesia Strengthen Maritime Ties Amid 60th AnniversaryThe Diplomat 2nd Jul 2018
Japan will help build fishing port facilities on Indonesia’s remote islands, including on the southern edge of the South China Sea. The 2.5 billion yen ($23 million) grant was confirmed during a trip to Jakarta by Japan’s Foreign Minister Taro Kono, who agreed with his Indonesian counterpart, Retno Marsudi, that the two countries would enhance cooperation in a range of fields.

IAF readies for ‘pitch black’ tour, war games with Indonesia and MalaysiaThe Economic Times 29th Jun 2018
NEW DELHI: The Indian Air Force (IAF) is priming its jets for simulated war games in Australia, Indonesia and Malaysia, in exercises spreading over more than a month that will see at least four Su 30 MKI fighters, a C 130 J special operations aircraft and a support C 17 transporter carry out military maneuvers.

Economics

Currency of Indonesia: Rupiah Finding a New Equilibrium Rate?Indonesia Investments 3rd Jul 2018
There are major pressures (particularly external ones) impacting on the Indonesian rupiah, hence undermining the impact of the higher benchmark interest rate. This also gives rise to the question whether Indonesians (and analysts) need to become used to a new equilibrium for the rupiah.

Relaxing LTV won’t alleviate impact of BI rate hike: EconomistsThe Jakarta Post 2nd Jul 2018
Bank Indonesia’s (BI) decision last week to increase its reference rate by 50 basis points (bps) to 5.25 percent will negatively impact economic growth in the second half of 2018, a senior economist has said, although the central bank also introduced a relaxation policy on the loan to value (LTV) ratio in an attempt to booth the property sector.

June Annual Inflation Rate Slows to 3.12%Jakarta Globe 2nd Jul 2018
Indonesia's annual inflation rate slowed less than expected in June from a year ago and stayed within Bank Indonesia's target range, the Central Statistics Agency said on Monday (02/07).

Indonesia hikes rates again to reverse rupiah slumpThe Jakarta Post 29th Jun 2018
Indonesia's central bank on Friday raised interest rates for the third time in six weeks as it moves to shield the rupiah from a selloff in emerging market currencies. Bank Indonesia raised its key rate to 5.25 percent from 4.75 percent. The rupiah has slid more than five percent against the dollar this year to below 14,000 -- its lowest level since 2015.

Bank Indonesia Aggressively Raises Rates to Defend RupiahJakarta Globe 29th Jun 2018
Indonesia's central bank on Friday (29/06) raised its benchmark rate by twice as much as the market expected, becoming the most hawkish Asian central bank as it ramps up efforts to defend the volatile rupiah and stem a sell-off washing across emerging markets.

Energy

Govt. Amends Provisions on Distribution and Retail Sales Pricing for Oil FuelsHukum Online 3rd Jul 2018
With the overall objective of improving the availability and distribution of oil fuel across Indonesia, the government has issued Regulation of the President No. 43 of 2018 (“Amendment”), which amends Regulation of the President No. 191 of 2014 on Availability, Distribution and Retail Sales Pricing for Oil Fuels (“Regulation 191/2014”).

Jokowi inaugurates first Indonesian wind farm in SulawesiThe Jakarta Post 2nd Jul 2018
President Joko “Jokowi” Widodo on Monday inaugurated the 100-hectare Sidrap Wind Farm in Sindereng Rappang regency, South Sulawesi, the first wind power project in the country and the largest of its kind in Southeast Asia.

Jakabaring solar power plant inaugurated to support Asian GamesThe Jakarta Post 2nd Jul 2018
South Sumatra Governor Alex Noerdin inaugurated a 2-megawatt (MW) solar photovoltaic power plant at Jakabaring Sport City in the provincial capital of Palembang on Saturday as part of preparations for the 2018 Asian Games, which will take place from Aug. 18 to Sept. 2.

Partnership Vital in Developing Palm Oil Industry: GapkiJakarta Globe 29th Jun 2018
Partnerships with communities are essential for developing the future of the palm oil sector, Joko Supriyono, chairman of the Coalition of Palm Oil Business Owners, or Gapki, said at a forum Asian agriculture in Jakarta on Thursday (28/06).

Govt disappointed over changing cost estimate for IDD projectThe Jakarta Post 29th Jun 2018
The government has expressed disappointment over the fact that Chevron Indonesia Company changed the cost estimate for the second phase of the Indonesia Deepwater Development (IDD) project three times in 24 hours.

PH, partner countries to boost biomass utilizationPhilippine Information Agency 5th Jul 2018
The Department of Energy (DOE) hosted on Tuesday (3 July), an international conference and capacity building workshop on biomass, as part of the overall strategy for sustainable energy development in Southeast Asia. The workshop was conducted under the auspices of the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA), which is part of the 6th Power and Energy Infrastructure Cluster (PEIC) Meeting. This activity underscores the importance of biomass and biofuels as abundant indigenous resources in the region for power supply and rural electrification.

Indonesia Introduces New Tariff Regime for Renewable EnergiesLexology 3rd Jul 2018
The Indonesian government has introduced a new tariff regime for renewable energies. The new regime gives the Indonesian state power company, PT Perusahaan Listrik Negara (“PLN”), greater control over tariffs in the sector through business-to-business negotiations and benchmarking against the applicable Electricity Generation Basic Cost (Biaya Pokok Penyediaan Pembangkitan or “BPP”).

Indonesia launches 1st wind power plantXinhua 2nd Jul 2018
Indonesia on Monday launched its first wind power plant in central parts of the country, aiming at more eco-friendly energy use. Indonesian President Joko Widodo inaugurated the 75-megawatt wind turbines in Sidrap regency of South Sulawesi province, a statement from the presidential office said. The wind turbine farm has 30 windmills with 80-meter high towers and 57-meter long propeller blades that each generates a 2.5 MW turbine.

Food & Agriculture

Indonesia, Malaysia must fight EU over CPO ban: MahathirThe Jakarta Post 29th Jun 2018
Malaysian Prime Minister Mahathir Mohamad has said Indonesia and Malaysia need to fight together against the European Union's plan to restrict exports of crude palm oil (CPO) and its derivative products to member countries of the union. The prime minister said he could not accept the environmental issue as the EU's argument for restricting CPO exports from Malaysia and Indonesia.

Health & Life Sciences

Balikpapan to vaccinate 172,000 children for measles, rubellaThe Jakarta Post 2nd Jul 2018
East Kalimantan's Balikpapan administration is to vaccinate 172,000 children between the ages of 9 months and 15 years for measles and rubella starting Aug.1. “We will hold the mass immunization simultaneously at puskesmas [community health centers] and through immunization services at other facilities,” Balikpapan assistant secretary Dyah Muryani said on Sunday.

Ministry staff nabbed in drug raid in West JakartaThe Jakarta Post 2nd Jul 2018
An employee of the Transportation Ministry was caught by police while allegedly consuming narcotics with a female companion and her four friends at a hotel in Glodok, West Jakarta. They were arrested in separate hotel rooms, West Jakarta narcotics division chief Adj. Comr. Erick Frendriz said.

Police seize 1 kg of crystal meth, 435 ecstasy pills in JambiThe Jakarta Post 2nd Jul 2018
Members of the Narcotics and Drug Crimes Investigation Unit (Satreskrim) at the Sarolangun and Jambi Police confiscated one kilogram of crystal methamphetamine and 435 ecstasy pills on Sunday. Two people suspected to be the owners of the drugs were taken into custody. The two people arrested were identified as PKN, 23, a resident of Batu Putih village in Pelalawan district, Sarolangun regency, and PI, 63, a resident of Sebangar sub-district in Mandau district, Bengkalis regency, Riau.

LGBT raids, persecution derail HIV prevention programThe Jakarta Post 2nd Jul 2018
Growing discrimination and persecution against lesbian, gay, bisexual and transgender (LGBT) people in Indonesia has derailed public health outreach efforts, leading to what Human Rights Watch (HRW) has called a “health crisis”, a report from HRW said Monday. HRW said Indonesian authorities were “fueling an HIV epidemic” because of their failure to halt arbitrary and unlawful raids by police and Muslim hard-liners on private LGBT gatherings.

House praises West Nusa Tenggara for halal cuisineThe Jakarta Post 2nd Jul 2018
The House of Representatives Commission X overseeing tourism has praised the West Nusa Tenggara (NTB) administration for its success in developing its halal food industry, especially on Lombok Island. "The commission has been impressed with the development of tourism in NTB, especially on Lombok Island, which is famous for its beautiful destinations, including beaches, hills, mountains, traditional customs and cultures, as well as food," the commission's working team head, Wiryanti Sukamdani, said in her speech at the Lombok Office of Tourism during a visit over the weekend.

KPU goes forward with banning graft convicts from running for legislative officeThe Jakarta Post 1st Jul 2018
The General Elections Commission (KPU) issued a regulation on Saturday that, among other things, bans former graft convicts from running in next year’s legislative elections, despite opposition from the House of Representatives and the Law and Human Rights Ministry. The regulation, which pertains to the nominations of House and Regional Council member candidates, was published on KPU’s website on Saturday night together with a short note that said the regulations would be used as “guidelines for KPU in carrying out the nomination stages […] in the 2019 legislative elections”.

Less stress may reduce stunting: NutritionistThe Jakarta Post 29th Jun 2018
Indonesian children have adequate access to nutritious foods, but the country’s stunting rate remained the second highest among ASEAN states, possibly as a result of childhood stress, said nutritionist Ratna Megawangi. At 44 percent of children under 5, Indonesia’s stunting rate is the second highest after Laos among the 10 ASEAN member countries.

ICT

Telkom Ready to Support Industrial Revolution 4.0Jakarta Globe 1st Jul 2018
Dian Rachmawan, enterprise and business service director at Telkom Indonesia, and Sanny Iskandar, chairman of the Indonesian Industrial Estates Association, signed a memorandum of understanding on the provision and development of telecommunication, information, media, edutainment & services in Jakarta on Thursday (28/06).

Industrial Revolution Poses Challenge for Future Human ResourcesTempo 30th Jun 2018
Minister of Manpower Hanif Dhakiri said that the most challenging issue facing Indonesia ahead of the industrial age 4.0 is the matter of human resources and their skills. “The human resource alone is not enough, they must bear a good set of skills,” said Hanif in a college graduation in Tangerang today, June 30.

Infrastructure

Logistic costs in Indonesia remain highThe Jakarta Post 3rd Jul 2018
Logistic costs in Indonesia are higher than those in other countries. Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) chairman Wahyu Utomo said 72 percent of logistic costs went to transportation.

Market Regulation

New Regulation on Online Single SubmissionHukum Online 3rd Jul 2018
The government has finally issued Regulation of Government No. 24 of 2018 on the Electronically Integrated Business Licensing Service (“Regulation 24/2018”), with the ultimate objective of bolstering investment and ease of doing business within Indonesia through the establishment of the Online Single Submission business licensing system (“OSS”) for business licensing processing.

Jokowi Inks OSS Decree to Boost Capital InvestmentTempo 2nd Jul 2018
President Joko "Jokowi" Widodo has signed the Government’s Decree No. 24 on integrated electronic services for business permits, or Online Single Submission (OSS). The decree, which was signed on June 21, sought to step up capital investment.

Foreign Tourist Arrivals Slip 7 Percent in MayTempo 2nd Jul 2018
The Central Statistics Agency (BPS) has revealed that foreign tourist arrivals to the country in May tumbled by 7.65 percent to 1.2 million from the previous month, which saw 1.3 million tourists. “There was a drop during the Ramadan month, which is quite normal,” said BPS Head Suhariyanto at the BPS office today.